WSJ What’s News - Why Xi Jinping Is Coming to the Economy’s Rescue

Episode Date: October 17, 2024

A.M. Edition for Oct. 17. WSJ correspondent Lingling Wei explains what convinced China’s leader to embrace broad stimulus measures after resisting prior calls to do so, even as he holds off on a full policy u-turn. Plus, Republicans worry Donald Trump’s strategy of outsourcing door-knocking may cause them to fall behind in key states. And scientists see hope in their race to save the banana. Luke Vargas hosts. Sign up for the WSJ’s free What’s News newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices

This podcast is brought to you by CME Group, the world's leading derivatives marketplace, offering the widest range of global benchmark products across all major asset classes. CME Group, where risk meets opportunity. Republicans fear Donald Trump's strategy of outsourcing door knocking won't get them enough votes. Plus, McKinsey cuts hundreds of jobs in China as it pulls back on government-linked work. And Xi Jinping reaches for the strong economic medicine he was reluctant to prescribe. But is it what the patient needs?

According to a lot of economists and analysts, what China needs to do is not to keep building stuff, keep producing stuff. What they need to do is to try something bigger to bolster demand. It's Thursday, October 17th. I'm Luke Vargas for The Wall Street Journal and here is the AM edition of What's News, the top headlines and business stories moving your world today. We begin with the race for president, as swing state Republicans are rushing to bolster Donald Trump's ground game, amid concerns among donors, political operatives, and lawmakers that his campaign's outsourcing strategy could come up short. To date, the Trump campaign has gambled that it can use outside groups like Turning Point Action to pay people to knock on voter doors instead of doing as much in-house, leading a GOP operative in Michigan to warn that

the campaign is knocking on one-tenth of the doors that they did in 2016. An RNC official pushed back, saying their efforts have yielded five times as many Michiganders committed to vote for Trump compared with eight years ago. In addition to turning point action, much of this year's GOP ground game is being undertaken by Elon Musk's America PAC, which has fired vendors on two occasions and, according to our reporting, at one point paid its door knockers $30 per door, far higher than more typical single-digit figures. We are reporting that Trump himself has asked Republican officials to prioritize election integrity over voter turnout efforts, saying his supporters would show up to the polls

regardless. In a tight race that's putting outsize importance on how campaigns allocate resources, Trump is facing a fundraising shortfall compared to Kamala Harris, whose campaign closed August with $404 million in cash on hand compared to his $295 million. Consulting firm McKinsey is cutting nearly 500 people from its China workforce. ——————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————————— account for a significant portion of its business. Lawmakers in Washington had grown critical of McKinsey advising the U.S. government, including on defense-related projects, while also consulting for the Chinese government, an issue that triggered this exchange between McKinsey global managing partner Bob Sternfeld and Republican Senator Josh Hawley on Capitol Hill earlier this year.

Senator, our work with the federal government, we stand behind. We bring— Well, I'm sure you do. It's incredibly lucrative. That's the problem. You make gobs of money off of our enemies and then you turn around and you make gobs of money off of us. It's outrageous, frankly.

Asked about McKinsey's current work with Chinese state-owned companies, the head of its business in the country said the firm selects clients rigorously and follows strict protocols to prevent conflicts of interest. A company representative said the central government of China isn't, and to his knowledge, has never been a client. McKinsey's reshaping of its China business comes as rival consultancies continue to undertake extensive work for government agencies and state-controlled companies, a story we featured on the podcast last week.

We can exclusively report that Elon Musk has tapped close confidant Omid Afshar to oversee Tesla's operations in North America and Europe, where the EV maker is facing stiff competition and cooling demand. Tesla's leadership team has been in flux since this spring when Musk laid off more than 10 percent of the company. He's also shifted more resources to robotics and artificial intelligence, areas that he views as critical to Tesla's future. Neither Afshar nor Tesla responded to requests for comment.

And in news moving markets today, Taiwan Semiconductor Manufacturing Co., the world's largest contract chip maker, has reported record net profit for the third quarter, which surged 54 percent from a year earlier. Those results, driven by strong demand for smartphone and artificial intelligence chips, could help dispel some concerns about the sustainability of the AI boom. Markets in China have closed lower, weighed down by property stocks, despite policymakers announcing a fresh round of measures meant to boost the struggling sector.

The European Central Bank is expected to announce a second consecutive quarter point rate cut at 8.15 a.m. Eastern, and back in the U.S., September retail sales figures are due from the Commerce Department at 8.30 a.m. Eastern, along with earnings from the likes of Blackstone this morning and Netflix this afternoon. Coming up, we'll look at why Xi Jinping has finally decided it's time to jolt China's economy and whether his stimulus package is likely to be enough. Coming up, we'll look at why Xi Jinping has finally decided it's time to jolt China's economy, and whether his stimulus package is likely to be enough. That story and more after the break.

Tired of capital gains taxes? Freq offers a smarter way to invest. Our direct indexing strategies are designed to help you keep more of what you earn. Get similar market returns on indices like the S&P 500 and save big on taxes with automated daily tax loss harvesting. China is Member FINRA, SIPC, and advisory services provided by Affiliate, Trek Advisors, LLC, and SEC Registered Investment Advisor. China is set to report third-quarter GDP figures overnight, numbers that come at a pivotal time for Xi Jinping. After two years of resisting calls to take forceful steps to prop up the economy, the Chinese leader has finally given in and intervened with a series of measures to put a floor under growth. to take forceful steps to prop up the economy, the Chinese leader has finally given in and

intervened with a series of measures to put a floor under growth. And for a look at what prompted that change of heart, I'm joined by the journal's chief China correspondent Lingling Wei. Lingling, there has been no shortage of bad news coming out of the Chinese economy in recent quarters. So what was it about the situation in late September, I guess, that convinced Xi that then was the time to step in? Sure, the bad news just kept piling up everywhere you look from real estate, the employment situation, especially among the young people, and local government finances are pretty bad

across the board. In particular, we were told by our sources that reports were basically going into the power center in Beijing, to Xi Jinping, that a lot of local governments are basically encountering pretty severe liquidity crisis. They have been unable to pay their employees, the civil servants, and day-to-day and private contractors alike. So the liquidity problem was so severe that caused Xi Jinping to have to act. Yeah, and it's the kind of severity, right, that has a political dimension to it as well. If people aren't getting paid, that is not just a purely economic issue potentially. Absolutely. It threatens growth for sure, but also people not getting paid that could threaten social and political stability in China.

And remind us what form the intervention ordered by Xi after this has taken thus far and kind of the intent behind the specific moves that we've seen. So the intervention so far has been a combination of monetary easing measures and fiscal steps. Many involve interest rate cuts and the central bank releasing a huge amount of funds for commercial banks to lend. And the central bank also has taken quite an unusual staff to encourage listed companies, insurance companies, brokerage firms to tap bank lending to buy stocks. So that shows Xi Jinping not only interested in

basically getting the financial house in order, he also had a desire to prop up China's stock market. And we have seen quite a response, quite a roller coaster ride in the markets. A lot of investors were initially very energized, but only to be deflated a little bit in recent days because if you take apart all the measures so far, a lot of them are really aimed at controlling financial risks, as opposed to stimulating demand in any meaningful way. I guess that brings us to the million dollar question, which is, are these steps enough, enough not just to assuage economists, but to materially improve the economic situation of the Chinese people, of businesses in the country? It's far from enough, according to a lot of economists and analysts.

What China needs to do is not to keep building stuff, keep producing stuff. What they need to do is to try something bigger to bolster demand. That means empower consumers, empower households. But we haven't seen any measures targeting those areas. Why not if it seems like such an obvious consensus recommendation coming from economists? Well, that has to do with China's own economic model for decades. And Xi Jinping wants to build China into industrial and technological superpower.

So that means government resources pouring into areas like high tech, EVs, semiconductors, those resources are not meant to flow into supporting households. So that has to do with the overarching political and economic agenda of Xi Jinping's. Lingling Wei is The Wall Street Journal's chief China correspondent. Lingling, thank you.

Thank you. And finally, scientists are one step closer to saving the banana. As it happens, the globally prolific Cavendish is under threat from two diseases which could threaten to wipe them out, a fate that befell the Gros Michel variety in the mid-20th century. But last month, researchers said they had bred a new banana called the Yellow Way One that's resistant to one of the major diseases and which shows promise in fighting the second. And Journal Sustainability reporter Claire Brown told us what that could mean for Big Banana.

Claire Brown, Journal Sustainability reporter, Big Banana The banana companies realize that this is really life or death for them. They need to come up with breeding that will resist disease because otherwise the grocery store banana export market as we know it will not persist in the future. The big plan with the yellow-wave banana is to continuously be breeding new bananas all the time. And so they could constantly replant different bananas that all look and taste the same to you and me, but that are bred with these resistance traits. So there's sort of a continual evolution of crops so that we don't lose all the bananas

to the same disease. Nat. And that's it for What's News for Thursday Morning. Today's show was produced by Daniel Bach and Kate Bullivant with supervising producer Christina Rocca. And I'm Luke Fargus for The Wall Street Journal. We will be back tonight with a new show. Until then, thanks for listening.